Costco Investment Analysis

by | Jan 8, 2026 | Uncategorized | 0 comments

Executive Summary

This case study examines Costco Wholesale’s December 2025 performance through the lens of Singapore investors, analyzing real-world scenarios, outlook considerations, practical solutions, and broader market impacts relevant to the local investment community.

Costco’s Performance: A Singapore Investment Perspective

Local Market Context

For Singapore investors holding Costco shares (traded on NASDAQ as COST), Thursday’s 5% rally offers a welcome relief after a challenging year. However, the Singapore context adds several unique considerations to this investment story.

Currency Impact on Returns

Singapore investors face SGD/USD exchange rate risk. Over the past year, the Singapore dollar has fluctuated against the USD:

  • When Costco hit its ~$1,080 highs in early 2025, the SGD/USD rate would have affected your actual returns
  • Recent SGD strength (if applicable) could have dampened USD-denominated gains
  • Any recovery in Costco shares benefits Singapore investors more when the USD strengthens against SGD

Example scenario: If you bought Costco at $1,000 USD when SGD/USD was 1.35, you paid S$1,350 per share. If it’s now $900 but SGD/USD is 1.32, you’re looking at S$1,188—a smaller SGD loss than the USD decline suggests.

The Singapore Costco Experience

Singapore has two Costco locations (Jurong and Eunos), and local shopping patterns provide insight into the company’s appeal:

What resonates with Singaporeans:

  • Bulk buying for multi-generational households common in HDB flats
  • Premium imported goods (Kirkland brand, US snacks, imported meats) at competitive prices
  • Popular weekend family destination—the food court alone draws crowds
  • Membership model aligns with Singapore’s value-conscious culture

Local performance indicators:

  • Long weekend queues at Singapore outlets suggest strong local demand
  • The bakery, meat, and candy categories that drove December’s US sales are also popular here (think mooncakes, premium beef, CNY snacks)
  • Jewelry sales mentioned in the report—relevant as Singaporeans shop for CNY gifts

Investment Considerations for Singapore Portfolios

1. Valuation in SGD Terms

With the current price around $900 USD (~S$1,200), Singapore investors need to assess whether this represents value:

  • P/E considerations: Costco traditionally trades at premium valuations
  • Opportunity cost: Could deploy capital in STI stocks, REITs, or Singapore-listed retailers like Dairy Farm International

2. Tax Implications

  • US withholding tax: 30% on dividends for Singapore investors (reduced to 15% if you file W-8BEN form)
  • No capital gains tax in Singapore—a key advantage
  • Special dividends mentioned in the article would face US withholding

3. Portfolio Diversification

  • Adds US consumer discretionary exposure to Singapore portfolios typically heavy in Singapore banks, REITs, telcos
  • Defensive characteristics: Costco’s value proposition works well in both strong and weak economic environments
  • USD asset: Natural hedge if you have USD expenses (kids studying overseas, travel)

Singapore Investor Scenarios

Scenario 1: The Conservative Retiree

Profile: 65-year-old with S$500K portfolio, regular Costco shopper

Consideration: The 10% decline over six months might feel uncomfortable, but Costco’s stability and modest dividend (even after US withholding) could suit conservative portfolios. However, at current valuations, Singapore blue chips or REITs might offer better yield.

Scenario 2: The Accumulator

Profile: 35-year-old professional building wealth, 20+ year horizon

Consideration: Current “cheaper” valuation after the pullback could be attractive. The stock split potential (hasn’t happened in decades) would be a bonus. Dollar-cost averaging through regular SGD-to-USD conversions could smooth currency volatility.

Scenario 3: The Tactical Trader

Profile: Active investor watching for momentum

Consideration: The 5% Thursday pop on decent sales data suggests institutional buying. However, shares remain ~10% below recent highs. Technical traders might wait to see if this breaks above the one-month resistance or fades.

Risks Specific to Singapore Investors

  1. Limited Control: Trading during US market hours (10:30 PM – 5:00 AM SGT) means reacting to news after-hours or pre-market
  2. Information Gap: December sales data reflects US winter holiday season; Singapore’s shopping patterns differ
  3. Geopolitical: Any US-China trade tensions could impact both Costco’s supply chain and SGD/USD rates
  4. Brokerage Costs: Some Singapore brokers charge higher commissions for US stocks vs. SGX-listed securities

The Bottom Line for Singapore Investors

Costco’s Thursday rally represents a tactical opportunity but requires careful consideration:

Bullish case:

  • Proven business model, strong brand
  • Current valuation more reasonable after 2025 pullback
  • Singapore’s two outlets demonstrate local market success
  • 17% upside to analyst targets (though targets also fell from record highs)

Cautious case:

  • Still trading at premium multiples despite pullback
  • Currency risk adds volatility to SGD returns
  • Better income options available in Singapore market
  • US tax withholding reduces dividend attractiveness

For most Singapore investors, Costco works best as a 5-10% portfolio allocation—enough to benefit from US consumer exposure and USD diversification, but not so much that currency swings or US market volatility dominate your returns.

The December sales beat shows the business remains healthy, but whether the stock becomes a compelling buy depends on your time horizon, currency view, and how much US exposure you want in a Singapore-based portfolio.

CASE STUDY: Three Singapore Investor Profiles

Case 1: The Tan Family – Multi-Generational Household Investment

Background:

  • Family patriarch Mr. Tan, 58, civil servant nearing retirement
  • Combined household income: S$180,000/year
  • Investment portfolio: S$650,000 (mostly CPF, Singapore REITs, bank stocks)
  • Purchased 100 shares of Costco at $1,050 USD in February 2025 (S$1,417 per share at 1.35 exchange rate)
  • Total investment: S$141,700
  • Regular Costco shoppers at Jurong outlet (family of 6 spanning 3 generations)

Current Situation (January 2026):

  • Costco now trading at ~$900 USD
  • Exchange rate: 1.32 SGD/USD
  • Current value: S$118,800
  • Unrealized loss: S$22,900 (16.2% decline in SGD terms)

The Dilemma: Mr. Tan believed in the company based on personal shopping experience but is concerned about:

  • Retirement approaching in 2 years
  • Portfolio concentration risk (22% in single US stock)
  • Whether to cut losses, hold, or average down after Thursday’s 5% rally

Analysis:

  • Emotional bias: Personal positive experience with Costco stores clouded investment discipline
  • Currency timing: Bought when SGD was weaker, amplifying USD losses
  • Concentration risk: Violated basic diversification principles
  • Time horizon mismatch: 2-year retirement timeline too short for volatile US growth stock

Case 2: Sarah Chen – Young Professional Building Wealth

Background:

  • Age 32, marketing manager at MNC
  • Annual income: S$120,000
  • Investment portfolio: S$180,000
  • Started dollar-cost averaging into Costco in June 2025
  • Monthly investment: S$1,000 into US stocks (40% Costco)
  • Average cost basis: $980 USD per share across 8 shares

Current Situation:

  • Total Costco holdings: 8 shares
  • Average entry: S$1,323 per share (blended exchange rates)
  • Current value: S$10,560
  • Total invested: S$10,584
  • Slight unrealized loss: S$24 (0.2%)

The Advantage: Sarah’s disciplined approach meant she:

  • Bought more shares as prices fell
  • Captured Thursday’s 5% rally on entire position
  • Has 25+ year investment horizon
  • Maintains diversification (Costco is only 5.8% of portfolio)

Key Success Factors:

  • Systematic investment approach reduced emotional decision-making
  • Time horizon aligned with asset volatility
  • Proper position sizing maintained portfolio balance

Case 3: Retirement Fund Advisory – Institutional Perspective

Background:

  • Mid-sized Singapore investment advisory firm
  • Manages S$450 million across 600 client accounts
  • Holds Costco in “Global Consumer Discretionary” allocation
  • Position size: S$13.5 million (3% of AUM)
  • Average cost basis: $920 USD (entered after initial pullback)

Current Assessment:

  • Position showing modest gain after December rally
  • Client queries increased during 6-month decline
  • Evaluating whether to maintain, increase, or reduce exposure

Internal Debate:

  • Portfolio Manager’s view: “Business fundamentals strong, valuation now reasonable, 7% comps beat expectations”
  • Risk Manager’s concerns: “Currency volatility, US recession risk, clients uncomfortable with -10% drawdown period”
  • Client Service feedback: “Clients love shopping at Costco but questioning why stock isn’t performing”

OUTLOOK: Singapore Investor Perspective

Macroeconomic Factors (2026-2027)

Global Economic Environment:

  • US Federal Reserve policy trajectory affects both Costco’s business and USD strength
  • Singapore’s open economy means US consumer health impacts local investments
  • Potential US recession would hurt consumer discretionary but Costco’s value positioning offers relative defense

Currency Outlook: The SGD/USD exchange rate will significantly impact returns:

Scenario A – USD Strengthens (1.35-1.38 range):

  • Costco reaches $1,000 USD (analyst target discount)
  • SGD value: S$1,350-1,380 per share
  • Singapore investor gain: ~15% from current levels in SGD terms

Scenario B – SGD Strengthens (1.28-1.30 range):

  • Costco reaches $1,000 USD
  • SGD value: S$1,280-1,300 per share
  • Singapore investor gain: ~8-10% despite USD gains

Scenario C – Stagnation:

  • Costco trades sideways $900-950
  • Currency neutral
  • Singapore investors see 0-5% returns, missing opportunity cost

Business Outlook for Singapore Market

Local Growth Drivers:

  1. Third Costco Location Potential: Rumors of expansion to northern Singapore (Woodlands/Yishun area) would validate growth
  2. E-commerce Integration: Costco’s online platform still underdeveloped vs. Singapore’s digital-savvy market
  3. Premium Product Demand: Rising affluence in Singapore supports Costco’s higher-end offerings

Competitive Landscape:

  • FairPrice Finest expanding premium offerings
  • Cold Storage/Market Place competing for affluent shoppers
  • Sheng Siong capturing value-conscious segment
  • Online grocers (RedMart, Amazon) gaining share

Costco’s Local Advantages:

  • Unique membership model creates loyalty moat
  • Experience-based shopping (food court, treasure hunt) difficult to replicate online
  • Import capabilities bring differentiated products

Investment Outlook: Three Scenarios

Bull Case (40% probability): Target $1,100 USD by end 2026

  • US economy remains resilient, consumer spending steady
  • Costco’s value proposition gains share during inflation concerns
  • Stock split announced (hasn’t happened since 2000), creating retail investor enthusiasm
  • Special dividend declared (precedent from 2024)
  • Singapore: With favorable FX, could mean S$1,430-1,485 per share

Base Case (45% probability): Range-bound $900-1,000 USD

  • Modest economic growth, Costco grows earnings 8-10%
  • Stock trades at current premium valuations, limited multiple expansion
  • Steady 7-8% same-store sales growth maintained
  • Singapore: S$1,188-1,320 per share range, modest single-digit returns

Bear Case (15% probability): Retest $800 USD

  • US recession hits consumer discretionary spending
  • Valuation compression as growth slows
  • Competitive pressures intensify
  • Singapore: S$1,056-1,088 per share, double-digit percentage losses possible

SOLUTIONS: Strategic Approaches for Singapore Investors

Solution 1: Portfolio Rebalancing Framework

For Current Holders Like Mr. Tan:

Immediate Actions:

  1. Assess true risk tolerance: 16% loss suggests position was oversized for conservative retiree profile
  2. Rebalance rule: No single foreign stock should exceed 10% of portfolio for near-retirees
  3. Trim position: Sell 50 shares (half), reducing exposure to S$59,400 (9% of portfolio)
  4. Redeploy proceeds: Into Singapore dividend stocks or bonds matching retirement timeline

Implementation:

  • Sell on strength: Use rallies like Thursday’s to execute sales
  • Tax efficiency: No capital gains tax in Singapore, so timing is purely strategic
  • Reinvestment targets: Consider CPF top-ups (4% risk-free), STI ETF, or quality REITs yielding 5-6%

Expected Outcome:

  • Reduced anxiety from appropriate position sizing
  • Maintained some Costco exposure for potential recovery
  • Better alignment of portfolio with 2-year retirement timeline

Solution 2: Strategic Accumulation Plan

For Growth-Oriented Investors Like Sarah:

Enhanced DCA Strategy:

Monthly Investment: S$400 in Costco (down from S$400)
Entry Rules:
- Buy S$500 if stock drops 5%+ in single week
- Skip month if stock rallies 10%+ from 3-month average
- Rebalance if Costco exceeds 8% of total portfolio

Currency Hedge Consideration:

  • Use multi-currency account (DBS Multiplier, OCBC Global Savings)
  • Convert SGD to USD when exchange rate favorable (1.35+)
  • Build USD cash buffer for opportunistic purchases

Diversification Layer: Add complementary holdings:

  • S&P 500 ETF: Broad US exposure reduces single-stock risk
  • US Consumer Staples ETF: Sector diversification
  • Singapore retail REITs: Local market balance

10-Year Projection Model: Assuming 8% annual returns + 2% dividend (after US withholding):

  • Current: 8 shares worth S$10,560
  • With continued S$400 monthly DCA
  • Year 10 portfolio value: ~S$85,000-95,000 (depending on FX)
  • Effective IRR: 9-11% in SGD terms

Solution 3: Options Strategy for Sophisticated Investors

For Those Comfortable with Derivatives:

Covered Call Strategy:

  • Sell call options against existing Costco holdings
  • Strike price: $950-1,000 (out-of-the-money)
  • Collect premium: $20-30 per share quarterly
  • Generates 2-3% additional income while capping upside

Cash-Secured Put Strategy:

  • Sell put options at $850 strike
  • If assigned, buy Costco at effective cost of $820-830 (strike minus premium)
  • If not assigned, keep premium income (2-3% quarterly return)

Singapore Implementation Challenges:

  • Need US options-approved brokerage account
  • Margin requirements may be higher for foreign residents
  • Time zone makes active management difficult (US market hours 10:30PM-5AM SGT)

Solution 4: Thematic Portfolio Construction

The “US Consumer Defense” Basket:

For investors who like Costco’s thesis but want risk mitigation:

Allocation:

  • 30% Costco (premium value retailer)
  • 25% Walmart (mass market value)
  • 20% Dollar General (discount retailer)
  • 15% Target (middle market)
  • 10% Consumer Staples ETF

Singapore Advantage:

  • Diversifies single-stock risk
  • Captures US consumer theme across price points
  • Reduces impact of Costco-specific issues
  • Still provides USD exposure for portfolio diversification

Expected Performance:

  • Lower volatility than single Costco position
  • Participation in consumer sector recovery
  • Better sleep at night for conservative investors

Solution 5: Tax-Optimized Structure

Minimize US Dividend Withholding:

Step 1 – W-8BEN Form:

  • File with your broker to reduce withholding from 30% to 15%
  • Renewal required every 3 years
  • Essential for any US dividend stock

Step 2 – Account Structure:

  • Hold growth stocks (like Costco with low yield) in regular account
  • Hold high-dividend US stocks in SRS account if applicable
  • Maximizes tax efficiency across portfolio

Step 3 – Dividend Reinvestment:

  • Even after 15% withholding, reinvest dividends
  • Compound growth offsets tax drag over time
  • Costco’s modest yield (~0.7%) means this is minor issue

IMPACT: Broader Implications for Singapore

Impact 1: Retail Investment Behavior

The “Experience Bias” Phenomenon:

Thursday’s rally highlights a growing trend among Singapore investors:

  • Anecdotal investing: “I shop there, so I’ll invest there”
  • Confirmation bias: Positive store experience ≠ good stock investment timing
  • Recency bias: Recent sales beat doesn’t erase valuation concerns

Educational Opportunity: Local financial advisors should emphasize:

  • Separate customer satisfaction from investment analysis
  • Company quality ≠ stock value at any price
  • Importance of entry valuation, not just business quality

Broader Market Impact: If Singapore investors increasingly make direct US stock investments based on personal experience:

  • Could lead to concentration in consumer-facing brands (Apple, Nike, Starbucks, Costco)
  • Neglect of less visible but potentially better-valued opportunities
  • Increased portfolio volatility from lack of diversification

Impact 2: Currency Risk Awareness

The Hidden Portfolio Risk:

Many Singapore investors holding US stocks don’t fully appreciate FX impact:

Example Calculation:

  • Investor A: Bought Costco at $1,000 USD when SGD/USD = 1.35 (S$1,350)
  • Investor B: Bought Costco at $1,000 USD when SGD/USD = 1.30 (S$1,300)
  • Current: Costco at $900, SGD/USD = 1.32

Results:

  • Investor A: -16.4% loss in SGD terms
  • Investor B: -9.2% loss in SGD terms
  • Same stock, same timing, 7.2% performance difference due to FX

Strategic Implications:

  1. Portfolio construction: Maintain 40-60% in SGD assets as anchor
  2. Currency timing: Consider FX trends when initiating US positions
  3. Natural hedges: Match USD assets with USD liabilities (overseas education, travel)

Impact 3: Wealth Management Industry

Advisory Model Evolution:

Costco’s 2025 performance and Thursday’s rally creates teaching moments:

For Robo-Advisors:

  • Pre-programmed rebalancing would have reduced overweight positions automatically
  • Emotional discipline enforced through algorithm
  • But may have sold too early, missing Thursday’s recovery

For Human Advisors:

  • Opportunity to demonstrate value through behavioral coaching
  • Helping clients like Mr. Tan avoid panic selling at lows
  • Explaining why business performance ≠ immediate stock performance

Industry Impact:

  • Growing demand for hybrid advisory (robo + human)
  • Clients want algorithm discipline + human judgment for volatile situations
  • Fee pressure as clients question value during drawdowns

Impact 4: Retirement Planning

CPF vs. Equities Debate:

For Singapore investors like Mr. Tan approaching retirement:

The Math:

  • CPF Special Account: 4% guaranteed, no volatility
  • Costco: Potential 10-15% returns, but with 15-20% volatility

Retirement Timeline Analysis:

Scenario: S$100,000 invested, 2-year timeline

CPF SA (4% guaranteed):
- Year 1: S$104,000
- Year 2: S$108,160
- Guaranteed outcome

Costco (volatile):
- Bull case: S$130,000 (30% gain)
- Base case: S$108,000 (8% gain)
- Bear case: S$85,000 (15% loss)

Impact on Retirement Planning:

  • Near-retirees should reconsider US equity exposure
  • CPF SA’s guarantee increasingly attractive as retirement approaches
  • Rule of thumb: Age percentage in defensive assets (58-year-old = 58% defensive)

Impact 5: Singapore’s Investment Ecosystem

Cross-Border Investing Growth:

Thursday’s Costco rally reflects broader trend:

Statistical Impact:

  • Singapore investors’ US stock holdings estimated at S$15-20 billion
  • Growing 15-20% annually as brokerage access improves
  • Costco among top 10 most-held US stocks by Singapore retail investors

Ecosystem Development:

  1. Brokerage competition: Tiger Brokers, Moomoo, Interactive Brokers competing for Singapore market share with lower US trading fees
  2. Financial media expansion: More SGD-focused coverage of US markets needed
  3. Education gap: Many investors don’t understand US market mechanics, tax implications, currency risk

Long-term Impact on SGX:

  • Potential liquidity drain from Singapore stocks
  • Competition for investor attention and capital
  • Need for SGX to enhance attractiveness (lower fees, more growth companies)

Impact 6: Sector-Specific Considerations

Singapore Retail Sector:

Costco’s strong performance has implications for local retailers:

Competitive Pressure:

  • If Costco opens 3rd Singapore location, increased competition for NTUC FairPrice, Sheng Siong, Dairy Farm
  • May force local retailers to enhance value proposition
  • Could accelerate consolidation in Singapore grocery sector

Investment Implications:

  • Singapore retail REITs with grocery anchors face questions about tenant stability
  • Traditional supermarket operators need to differentiate (convenience, online, localization)
  • Potential opportunities in Singapore retail stocks if market overreacts to competition

Consumer Impact:

  • Greater competition benefits Singapore consumers through better prices
  • But could hurt local businesses and employment
  • Government may eventually consider market concentration limits

RECOMMENDATIONS: Action Plan for Different Investor Types

For Conservative Investors (Mr. Tan Profile):

Immediate (Next 30 Days):

  1. Trim Costco position to maximum 10% of portfolio
  2. Calculate actual SGD return including currency impact
  3. Establish clear exit rules (sell if drops below $850 or 12 months before retirement)

Medium-term (3-6 Months):

  1. Rotate proceeds into CPF SA for guaranteed 4%
  2. Consider Singapore blue chips for dividend income
  3. Maintain small Costco position only if comfortable with volatility

Long-term (1-2 Years):

  1. Move to 70% defensive portfolio (CPF, bonds, dividend stocks)
  2. Limit foreign stock exposure to 15% maximum
  3. Focus on capital preservation, not growth

For Growth Investors (Sarah Profile):

Immediate:

  1. Continue dollar-cost averaging at current pace
  2. Set up multi-currency account for better FX management
  3. Rebalance if Costco exceeds 8% of portfolio

Medium-term:

  1. Add complementary US holdings to reduce single-stock risk
  2. Consider S&P 500 ETF for broader exposure
  3. Increase contribution if income grows, maintaining position sizing discipline

Long-term:

  1. Hold through volatility given 25+ year horizon
  2. Review performance every 6 months, not daily
  3. Consider taking profits if Costco exceeds $1,200 and becomes overweight

For Institutional Managers:

Portfolio Management:

  1. Maintain 2-4% allocation to Costco as quality US consumer exposure
  2. Use Thursday’s rally to trim if position exceeds target weight
  3. Establish systematic rebalancing rules to remove emotion

Client Communication:

  1. Proactive education on why stock lags despite good business results
  2. Explain valuation multiples and mean reversion
  3. Use Costco case study to teach diversification principles

Risk Management:

  1. Stress test portfolio for US recession scenario
  2. Consider hedging USD exposure if substantial overweight
  3. Monitor client sentiment and preempt panic selling

CONCLUSION: The Singapore Investor Takeaway

Thursday’s 5% rally in Costco shares offers important lessons for Singapore investors:

Key Insights:

  1. Business Quality ≠ Stock Performance: Costco is excellent company, but 2025 showed even great businesses can underperform when valuations are stretched
  2. Currency Matters: Singapore investors must account for FX impact—it can swing returns by 5-10% independent of stock performance
  3. Time Horizon is Critical: Same investment (Costco) is appropriate for Sarah (32, long horizon) but questionable for Mr. Tan (58, near retirement)
  4. Emotional Discipline Required: Personal positive experience with Costco stores shouldn’t override investment fundamentals
  5. Diversification Remains Essential: No single foreign stock should dominate portfolio, regardless of conviction

The Path Forward:

For Singapore investors evaluating Costco after Thursday’s rally:

  • Don’t chase: 5% single-day move doesn’t change fundamental picture
  • Review position sizing: Ensure allocation matches risk tolerance and time horizon
  • Consider alternatives: Compare to Singapore opportunities offering better risk/reward
  • Think long-term: If you can’t hold for 5+ years, you shouldn’t hold for 5 days
  • Respect currency risk: USD exposure is a feature, not a bug—size positions accordingly

Final Verdict:

Costco remains a quality business with strong competitive advantages. For Singapore investors, it can play a role in portfolio diversification and USD exposure. However, the 2025 experience demonstrates that even the best companies can underperform, and local investors must manage the additional complexity of currency risk and cross-border investing.

The Thursday rally is a reminder that markets are unpredictable in the short term. Whether you’re holding, buying, or selling, the decision should be based on your personal financial situation, time horizon, and overall portfolio strategy—not on a single day’s price movement or because you enjoy shopping at the Jurong outlet.